Schäuble says bail-out fund is strong enough

Wolfgang Schäuble, Germany’s finance minister, said today that the eurozone's bail-out fund does not need strengthening, despite several eurozone countries having their credit ratings downgraded last week.

Speaking on German public radio, Schäuble said: “The guarantee that we have for the EFSF (European Financial Stability Facility) is more than adequate for what we have to do in the coming months.”

Schäuble was commenting on speculation that eurozone countries would have to increase their guarantees for the EFSF after Standard and Poor’s, one of the big three credit-rating agencies, downgraded several countries, including France.

The EFSF has a lending capacity of €440 billion. There are fears that its capacity could be reduced if its credit rating is downgraded.

Officials have said that the EFSF can easily cope with the financing needs of the two countries currently receiving assistance, Ireland and Portugal.

The EFSF has an AAA credit rating, which allows it to borrow funds on capital markets at competitive rates. The EFSF’s rating is based on the ratings of six eurozone countries that had AAA status. S&P downgraded France and Austria from AAA status on Friday (13 January) because of concern that eurozone policymakers were not taking sufficient action to deal with the crisis.

Schäuble pointed out that a permanent bail-out fund, the European Stability Mechanism, would be available from July. Its lending capacity will be based on paid-in capital, rather than guarantees provided by eurozone countries.

The minister said that EU policymakers were looking at ways of reducing the role of ratings agencies. EU governments and MEPs are negotiating new rules for the sector.